Homes priced beyond new grads
At current rates, fresh grad workers cannot afford to buy a house
It was one of those long eye-opening conversation between father and his soon-to-graduate son.
“What are you going to do when you graduate?”
“Get a job, buy a car.”
“Don’t you want to buy a house?”
“It’s too expensive. I can always live with you and mum,” says Sonny.
There was a long silence.
“Dad, I went into environmental studies because I believe I can do my little part for the world we live in today. I am not looking for a fat salary,” says Sonny.
“But you need to have a decent salary in order to buy your own house one day. You can’t live with mum and dad forever, although I know your mum would like that,” says Dad.
“I read somewhere that it is possible for young people to buy their own house without taking a two-generational loan. And I am trying hard to be independent. I just need to get around some puzzling issues.
“Like what?”
And so begins the little lesson in house ownership.
What sort of loan tenure will be suitable for a young person?
A 35-year loan is more than adequate. If he needs a loan tenure longer than 35 years, it just means that he is buying something that is far beyond his current income levels.
What sort of loan tenure do most banks provide?
Most banks only give housing loans up to 30 years. Selected banks previously gave loans up to 45 years. These are two generational loans. Most people are against two generational loans as the second generation is born into debt – “Slave into debt”.
How much of my salary should go towards housing loan repayment?
The rule of thumb is always the following:
(a) Any single loan repayment should not exceed a third of the borrower’s income
(b) All combined loan repayments should not exceed half of the borrower’s income
(c) The price of the house ideally should be three times that of the borrower’s annual household income to be deemed as affordable based on a study by Harvard University and World Bank. A young couple with RM10,000 between them is equivalent to RM120,000 a year. The value of the house that this young couple should be looking at is RM360,000 at the most.
Does a young person need help from parents to buy a house today?
It has become almost impossible for a fresh graduate to buy a property without parental support. Many condominiums are now launched in excess of RM500,000 even in suburban areas and landed properties in areas such as Kota Damansara are almost RM800,000 and above. How is a fresh graduate with a starting salary of RM3,000 ever going to afford such properties?
Here are some numbers to chew on. The monthly repayment for a housing loan of RM450,000 (average condo price of RM500,000 less 10% downpayment) for 30 years is RM2,175. This is 72% of the fresh graduate’s monthly income of about RM3,000.
Fresh graduates will have to continue staying with their parents until both the parents and the borrower have saved enough money for a larger downpayment, or for the parents to withdraw their own EPF funds to help their children.
What about young people applying for government-linked projects like Perumahan Rakyat 1Malaysia (PR1MA)?
Some quarters have commented that young professionals still have the option to do that. PR1MA has just raised the ceiling price of their properties to RM450,000 and the maximum household income eligibility to RM7,500. Based on a study by Harvard University and World Bank, the ratings of the Value of Property over Annual Household Income are as follows:
Based on the above study, the Value of PR1MA properties are actually not affordable by international standards. In fact, it is between “Seriously” to “Severely unaffordable”.
Under PR1MA, the borrower need not pay the 10% downpayment and can take a 100% loan for the RM450,000 property.
We have illustrated a typical household income vs expense of a prospective PR1MA buyer (see table above).
Hence, it would not be unusual for banks to reject PR1MA applicants for housing loans as many of them are buying far beyond their income eligibility. In other words, PR1MA properties are just too expensive. House Buyers Association (HBA) has suggested a price of between RM150,000 and RM300,000.
By this time, both dad and son are glad the conversation is coming to an end. There does not seem to be a happy ending though.
“What does this mean, Dad?”
“It means the Government must introduce further measures to reduce speculation in the property market. The Government must bring back the old formulae of real property gains tax, higher stamp duty for buyers of multiple properties, further reduction of loan to value ratio,” says Dad.
Chang Kim Loong is the honorary secretary-general of the HBA (www.hba.org.my), a non-profit, non-governmental organisation (NGO) manned by volunteers. He is also an NGO councillor at the Subang Jaya Municipal Council.
Source: StarProperty.my
Issue is not the housing pricing. Issue is the wages. Old housing will never return unless every households item, food, etc returned back to old price too. This is called inflation. Issue is due to the wages. Malaysia is a developed country and RM3k per month is far to low compared to other developed countries. Our education is getting worse and worse. We can’t produce high quality talents despite employer stated in the newspaper what is the issue. Worst with brain drain for those who are no given opportunities. If a country can’t provide what an investor one…there won’t be any negotiation power.
Malaysia Boleh!!!
@Elmo
Yea… Very true. Malaysia wages is jz too low to catch up with developement.
We move to Zimbabwe?
All having the equal opportunities to get high pay for their better life. The the key problem is most of the employee are not performing and become the burden/liability of the company. Retrenchment is not easy. So the only way is to maintain their low pay for them to disappear themselves. One thing we have to admit is nowadays youngster are expecting for good pay but majority are not performing to the employers’ expectation. All will make good earning if they are performing. There are many head hunting company around to allow for good good pay.
That’s right. Back to basic education system issue.
MYR is weak..buying power is not strong compare to other currency. Thus prices are high to buy materials and etc… But wages are low… It’s just difficult to keep up with inflation.. Need to work hard or be lucky to hit a mini jackpot to come up with such huge dpymt for a hse..
@Elmo
The house prices increasing by 100-150% over the last 5 years has nothing to do with inflation… Did you household items rise by the same about in the last five years?
House prices have risen so much because of access to cheap credit which has been directed to house speculation causing housing bubble… This is the same for what has happened in Europe, USA and Australia.
Wage also rise with inflation, because if they don’t you will have civil unrest like in Egypt, Brazil, and a few of the European countries.
The sad fact is, property prices in Malaysia will fall over the next few years…
Why? because all the foreign money is leaving the country which means that the banks won’t have access to cheap credit to lend to the public to continue speculating on properties. As the foreign money leaves interest rates will rise substantially to try and entice the foreign money to stay. This will mean all the people who borrowed will suddenly find that more of their income will need to be used to service the loans… This will break many people and a lot of properties will flood the market make in property prices fall.
Then those who hang on will suddenly see that their property is going down in value so they try to sell also because they don’t want to end up with negative equity in their home.. and so the cycle feeds it self until the property prices are at a level that the average person can afford once again…
And so this is the boom and bust cycle that is property… Very simple really
Fresh grad and experience worker sure there is different, just start with low pay and their pay will increase when they gain more experience. Rent house 1st then only buy house when their wages increase. I believe fresh grad starting pay around 3k in 3 -4 years time their wages will increase to 5k -6k which is enough for them to buy house.
My starting pay is RM2.6k but in 2 -3 years my pay increase to 6k, with the bonus and elaun + part time job. I believe they can afford a 400k – 500k house easily, fresh grad just need wait 2 -3 years to buy a house that it.
Plsssssss laaaaaaaa. Boss will never satisfy with your performances.
Only fresh grad got problem based on their pay.. In years to come they can hit higher salary.. No problem!! Big deal anyway, I think they might want to enjoy life first in their first few years instead of buying a house…
@WW
WW, may I know what kind of job you are doing? I believe most of the people won’t be able to double their salary in just 2-3 years. I’m an engineer, maybe you are in different field?
@WW
Are you in the escort service industry? Can I have your contact number? I will be in Penang to view some properties and may need company during the cold lonely nights at Batu Feringgi.. I prefer locals who are ok with three way
@Ken
Cos government needs the moolah from the stamp duty and transfer fees
House price increase is inntandem with increase of raw mtrl, labor cost, high demand besides cheap interest. This been a fact and dont blame anyone, as it go no way. U expect price go down, certainly, 2-3 percent but will increase 20-30 percent at the same time. Accept it or leave it, maybe just rent a unit but not buying it
@Fakrul
Agreed…. if you do not buy then be prepared to rent for the rest of your life and leave no legacy behind for your children….behind your back they will say…. old man stupid… last time did not buy property… now we are living in poverty
@Ken
You are whining…..if you do not buy then be prepared to rent for the rest of your life and leave no legacy behind for your children….behind your back they will say…. old man really stupid like donkey … last time did not buy property… now we are living in poverty
Agree…every now and then always read same comment about greedy developer/speculator and useless authority.. You know, you should learn by now that if you cant beat them, join them or at least be better. Stop complaining and start doing something for yourself!
SBS, according to WW, he has a part time job as well. I figure if job hopping, 30% increment + good bonus and elaun…6K is possible! Just need to work hard. Also, as an engineer, you have ample opportunity to go on business trips.. Allowances from these trips are huge! They are your downpayment to your dream home!
@Alvin,
Well, for all you know, Ken would have already done something for himself, joined in the speculation bandwagon and made a fortune for himself. What you said is true, that when you can’t beat them, join them. It’s just that he never lost sight of what’s right and what’s not, what’s good and what’s not.
@condomana
I quite agree with Christine. Property is the best way to be fianncially secured and where else but on Penang Island… Well done Christine…..far sighted
@Winston Chan
Yes. I also think that buying property on Penang Island is the best. Too much land on mainland and mainland really ‘ulu’. No attraction at all. Boring ‘ka boey si’. Always buy Penang Island properties only.
@Alvin
Affordable but they will lose out in the long run. No way appreciation on mainland can catch up with Island. Even a kid knows that but some who cannot afford island properties conjure up 1001 excuses to make themselves happy to live in ‘ulu’ and boring ‘ka boey si’ mainland. Furthermore they take a million years to reach island to work braving the traffic every morning. I really feel so pity for them. Take care mainlanders in the ulu
For me.. fresh grad not able to get a house is still in my tolerate range.
As personally think fresh grad should not get a house at this stage. There is few reason as they should spend they first few years to explore more and not decide where to stay in short term. If you are not tie up with any loan, then you can go any place to work or even relocate to foreign country when there is opprtunity.
The saving can go for some light investment like share, saving, unit trust etc.
When you have made decision on your life on where to settle down and is time for expand your family, then is the time to look for a house.
since own stay is not consider investment and consider as “spending”, why they cannot just stay with their family, with parents and enjoy the family life. Spend sometime with the old one and time for being with them is getting lesser and lesser.
If exclude those young one.. only those > = 30 buying new property.. i guess the market will be more stable and less issue.
@Local Man
@funny
Why people like to compare living in Penang Island and mainland.
House is to build family relationship and not to make profit at early stage.
I will not sell the house which full of childhood memory.
I think i will never joint this Penang forum as thinking of u guys was so like to show off you are staying Penang Island( Squatter in Tanjong Bungah), Mainland people Ulu ( Staying Semi-D in DNP area)???
What the stupid thinking. 010,010, Feeling sick when saw this.
10 years ago when I was a fresh grad, I am not able to afford a house anyway even though the price may be only half of what we are seeing today. The BLR was high at that time, and the interest offered by bank was “BLR + x%”. There is no such thing as DIBS from developer, and government wasn’t offering any incentive for first time buyer whatsoever. Comparing to today’s situation, house price may increase tremdously but with the lower interest rate, different bank package, government incentive and so on, the entry level is lower and therefore easier for fresh buyer to step in. These 2 factors kinda compensated each other, so I don’t see any difference between fresh grad today and 10yrs ago in terms of house affordability.
Furthermore, as a fresh grad, my priority at that time definitely not in getting a new house for myself. Salary was “humble-ly low” at that time, not to expect much for a fresh grad. I don’t need big space so i am comfortable with rented room and later on a rented house. Car was my first priority else just cant move anywhere in this boleh-land. There were also some family commitment, study funds, and personal leisure/luxury things. Every month there is not much deficit not to mention that save enough for a new house deposit and installments follow-suit. Even though it may be possible to get a low cost flat, but being a more “posh” younger generation who was looking for status, that was definitely not in my consideration list.
I started thinking about a home for myself only after I got marriage. Salary has improved substantially, wife is working, savings accumulated over years and the combine monthly salary we have, we finally managed to get one fine-looking condo which suit our status.
So are fresh grad being victimised due to high house price as portrayed by this article? My answer is a definite no.
To me this “fresh grad” ordeal is just part of the life, we need time to grow and to realize what we need in different stage of our life. It is meaningless to get a 30+ or 40+ year old writer to comment on youngster’s behalf, he is just basically throwing his own frustration over house price as maybe is stranded in getting one house for himself.
My 20+ niece is busy everyday with her LV or coachy shopping everyday; facebook, fine-dining, traveling are her priority and she totally doesn’t give it a damn when come to buying a house. This thing is not even embedded into her mind so why force it?
@ffg,
The article above is just an illustration of home affordability. What it is trying to say is, last time junior executive can afford a house, now they can’t. Last time senior executive can afford NICE house, now they can only afford small apartment. It is not about whether junior executives should or shouldn’t buy properties. That discussion should belong to another topic, called “Priorities of Young Hormone Raging Professionals”….:)
One can always argue that as time passes, population grow, so you have more people living in the same old penang island, so smaller living space is unavoidable. But the issue in Penang is, there is actually no significant increase in population, but yet people are getting forced to accept smaller living space due to speculative buying and foreign ownership.
Your niece different story mah. Designer girl can get a rich designer husband next time, so no need to worry about housing. She just needs to concentrate on making herself look nice and desirable to rich h*rny male”s”….:)
@JJ,
People like to compare mainland and island because they are having a tough time trying to sell the properties they bought for speculation.So must take every opportunity to hard sell….:)
fresh grad unable to get a decent house is normal. Yes, “decent” house, because nowadays fresh grade never consider low cost house as a house.
I know a fresh grad who started working as an engineer. He rented a low medium cost flat which he calls home until today @ RM300 for the past 8yrs. He was not able to buy a hse back then as there are just too many commitments.
As of today he has multiple property in Penang and overseas but he still rent that low medium cost flat which gives him the memories since he started working (Owner doesnt want to sell to him). I asked why, when he could have live in his condo or landed, but he only answer me “I am use to it in my first ever rented home since I started working..I like it here”
So fresh grad cannot afford current housing price? Well, there are cheap rental all around in penang. Its never a bad idea to rent first and then pick up the pace as you go on.
I see someone was saying after a few years fresh graduate can earn 5-6K from entry of 2-3K. Well, not everyone has the capabilities to promote and get increment. In a company, how many ppl actually earning over 5K? Only those high position and elites can earn that much. The average Joes normally earning 2K-4K and these are the people who are struggling to own a house.
It is not like they are lazy or stupid, it just that they do not have the talent to excel. Some of my friend not earning much bcoz they are working in sectors with lower income range. You can’t just say it’s their problem to earn so little for living, right?
However, what @ezalor said can be consider true bcoz it is rare for fresh grads to consider low cost house. Well, you can’t blame them bcoz LC house is always link to foreigner nest.
I really don’t know what is Malaysia market in term of salaries increment. It very much into industrial as well. I only can give my opinion from Singapore perspective which is very much aligned with country GDP growth.
But I have to admit, Malaysia ex-change rate is really bad. Buying power is really low. E.g Fresh graduate in Malaysia = RM3k. SG fresh graduate also SIN$3k. However the buying power for item is higher in SG. Simple household items like shampoo costed over RM15 and in Singapore can get it around SIn$5-6. So the saving is more for employee worked in Singapore.
For me quality of life is very important and I believe many youngster also think that way. I won’t want to stay in LC because of the complexity of the people (minority) staying there. This is the mindset new generation are setting. However we have to accept the fact, we need to live within our ability. If we want better life, we need to push ourselves and the only way is put pressure to move forward when you are still young.
I have 1 condo and one landed property in mainland …..And I choose to stay in mainland.. Y? Ulu than island is true.. But I have everything I need here.. And this place is quiet and harmony…seriously bird singing in the morning.. Lol … Compared to island..where u can hear motorist vroom all the way along the road…however.. Appreciation in island property is good.. That’s y I gonna to buy another one in island… 😀
Might as well stay in Jawi, you can smell the cow dungs as well. Very peaceful surrounded by palm oil plantations
@ho
I totally agree with you. All those who have given up, please do us all a BIG favour and move to mainland, please. You are welcome to go and have your permanent peace
Some must have kidding, making fun of themselves saying staying in mainland is way much better than island, large numbers of residents…commute to work from mainland to island daily, yawning about island traffic.
Yet talking air living quality, seberang jaya, bukit minyak heavy industries is no longer 1970 big vegetables farm. Heavy industries getting more in mainland due to island land scarcity.
Recent years, price of property price is seberang prai climb up even higher. New housing area in mainland is bundled with guarded & gated for FREE, reason being is criminal rate, bear in the newly developed is not cheap..Semi-D in BM cost 1 million, laid back lifestyle of rural living Alma new Semi-D fetch 700k ??
@ho @Tricia Gomez,
I am just curious, why do you guys get so worked up when someone says mainland is a nice place to live?…:)…Just a friendly curiosity ok, don’t come and whack me pls….:)
@nd4spd
So why, in your opinion, do you think a semiD in BM is selling for RM 1 mil, and Alma RM700k? Is it because of real demand? or speculation? or what?
@condomana
Thanks to those wealthy mainlanders push up the price…
New developed in mainland prime location/hotspot is not cheap, real transacted value
Price advantage that mainland properties used to have slips away. Good for own stay but think twice for investment.
Every month having property fair in Penang, end if this mth 3 day fair in Quensbay, the developer hv difficult time to sales newly launch property, oversupply in Penang and mainland. Property fair became like pasar malam, just wasting time attending the fair. Anyway they looking for foreigner buyer, not local.
if i am foreign investor, i will not buy properties with low rental return. If just want to wait for value appreciation, better just buy LAND and keep.. less holding fee and almost no need maintenance..
to buy land.. u need to fork out 50 or 60%downpayment..
@seriousbuyer
what does “investors” means? it means they have cash and want to invest in somewhere/something which has higher return than fix deposit/bond fund! If borrow money from bank with 4.XX% interest to buy houses and earn only 5% rental return, that is not call investors. Invest in houses also need to fork out 30% downpayment (if already purchased more than 2 times before).
Mad, mind sharing some tips of buying land, maintainance difference with property investment and etc?
@Mad,
Pls consider all angles carefully before you speak, looks like there’s an ambush ahead!….:D
@condomana
They say you stay at the Brezza and you bought it upon completion after speculating that the price will drop. So that should answer your question…
Just to clarify i am not against people opting to buy a home at mainland.
Everyone is entitle to their choices.
I am just recommending Jawi because the houses there are cheap and will stay cheap for years : )
@Bryant
Property price comprise of the land price and the building cost. You pay RM500psf may be RM300psf is the land price and RM200psf is the building cost. Land price will appreciate in value but building get older, need maintenance, and depreciate in value as time go by. If the rental return is low then the building depreciation + maintenance cost actually eroding the profit year by year.
Will those property prices in mainland stay low forever, the answer now is no. It is now catching with the penang island property prices and soon when these few mega project is complete, hell know that it will be turn upside down. Hohoho, im not a fortune teller but what I foresee that penang island will be so called yeterday. More and more MNC will move to mainland due to cost and considering the land is limited there wont be much development will be taking place in the island unless u r willing to go way way south.
Ur comment really make me LOL! U r like saying like Singapore island property price will be lower than Johor in future.. First, do you know y Penang property price sky high? It’s bcoz of expatriate instead of local ppl, yes, MNC now more in mainland but do you know those expatriate who work in MNC stay where? Penang island!
@Monkeyman
Your answer to the comment made me LOL even more… You think that an expatriate community that is something like 0.01% of the Penang Island population can move the price of property?
Maybe I should buy up all the new development offer working visas through my company for a few thousand expats and presto my portfolio would double in price over night… Thanks Monkeyman for the best idea of the century…
I don’t know why everybody is so concerned about affordability for grads…
Property prices will start falling soon as interest rate start to rise over the next 12 months, and here is why….
Foreign money that is leaving Malaysia is now accelerating. This is why MYR/USD has been falling over the last few months. And also why Malaysian credit rating has been down graded to negative by several international ratings agencies… Not looking good for property…
This foreign money is the source of cheap credit for the banks that they use to lend out to the public. The banks made it easy to borrow this money for housing speculation. and hence property prices sky rocketed over the last 5 years.
But as the foreign money leaves the banks will find it hard to get their hands on new sources of credit. This will cause interest rates to start to rise to try to attract the foreign money to stay… This will be passed on to the public. And when I say rise I don’t mean by 0.5% or 1%. I mean 3-4-5%…
This will cause many people who already over committed themselves at the current low interest rates to start to struggle. It will cause many to start defaulting (default rates are at record highs anyway… Been to a bank auction lately???)
So property prices will flood the market at an accelerated rate causing huge over supply and forcing property prices down…
Those who are holding onto properties to speculate will also dump their properties on the market and slash their prices just to get rid of them…
Those who brought for investment will also dump their properties on the market because they don’t want to end up in negative equity…
Interest Rate up and down doesn’t depends on foreign money. Credit ratings are determined by whether there that the country will default on interest payments and repaying its debt. Malaysia currently at A-.
If the monetary policy makers wish to decrease the money supply, they will increase the interest rate, making it more attractive to deposit funds and reduce borrowing from the central bank.
Bank Negara Malaysia (BNM) makes interest rate adjustments based largely on close to current economic indicators.
BLR rates are highly affected by the Overnight Policy Rate (OPR), which is the interest rate at which other banks among themselves. OPR itself *IS* determined by BNM. Whenever the OPR changes, most banks will follow change their BLR.
Most countries now look at US economy now. Once US interest rate increased by 2015 (most analysis predicts), most Asian countries will follow.
Malaysia Inflation Rate Steady at 1.8% in June
In June of 2013, the annual inflation rate remained unchanged at 1.8 percent, the same rate recorded in the previous month, as government subsidies prevented higher food price increases ahead of the Muslim month of Ramadan.
Bank Negara Malaysia Holds Policy Rate at 3%
At the Monetary Policy Committee meeting held on July 11th, Bank Negara Malaysia decided to maintain the Overnight Policy Rate at 3.00 percent for the thirteenth time, citing concerns about weakness in the external sector….NOT a good sign….GST must kicks to sustain the subsidies. No other choice.
Source from: http://www.tradingeconomics.com/malaysia/rating
agree with @Gloom. The effect of credit downgrading of Malaysia will be lower currency conversion rate compare to other major currency in long term. So foreign investors will try to cash out investment in RM and turn to investment in other currency. Properties is definitely one of it be affected.
@Gloom
I got questions. Foreign money is leaving, so what will happen? Property market crash? BNM will increase the OPR to attract the foreign money for what purpose? So that property market will not crash? If increasing the OPR will caused the many ppl sell the property and eventually the property bubble burst, and worsen the economy performance, than why need to increase the OPR at the first place?
@Elmo
You are partly correct… You fail to understand the Malaysian economy is highly reliant on inflows of foreign money (hedge funds). This money is given to the government to invest in infrastructure, health and education, and to banks which lend out to the public, and collect the difference in interest rates as their profit.
The easiest and quickest way for the banks to lend out money if for property speculation. doesn’t take to many people who borrow RM 1mil to become RM 1bil in loans (1000 loans). The interest rates set by BNM has nothing to do with bank interest rates… Go back to early 2000’s and you would see that the bank interest rates were BLR + 2-3%, now they are BLR – 2-2.5%.
Why is BLR – 2-2.5%, because the banks can get foreign money at lower rates then from the central bank. But now that this cheap money is leaving Malaysia the banks will start to look to the central bank to borrow money or will have to offer better returns to the foreign money to stay. Either way this will put pressure on interest rates to go up.
Another side effect is that as the MYR/USD drops you get inflation due to the loss of purchasing power. So all those household items you buy that are imported will become more expensive. This means more of the disposable income will go towards these household items which means you have less money you service your house loan repayments and have lower serviceability to purchase a house. This will put pressure on house prices as people have less money to spend.
wah good ah, not only can talk c*ck about properties here, can also learn economics…:)…I would strongly encourage my children to come here next time for some fun and learning!!
@Gloom,
Thanks for the tutorial, but i think you’re a little over pessimistic about the credit outlook. Nevertheless, to minimize the impact of an unlikely credit shock as described by DrGloom, one should always buy prime properties only, as they are well sought after by the doctors at Gleaneagles who are printing money out of your ailing lungs, regardless of the credit rating….:)
@Hemsley
The problem is that the property prices appreciation in Malaysia was due to foreign money coming in after the GFC as the hedge funds were chasing better returns then the 0% interests set in USA and UK. and not just in Malaysia but in SE Asia in general. So property prices appreciated and really had very little to do with economic fundamentals.
It’s a catch 22 now… doesn’t matter what happens to the OPR, either way the property bubble will pop and the economy will suffer… You thing that economies just grow indefinitely without property crashes or recessions or downturns? What do you thing makes Malaysia so special that this could never happen here?
Malaysian property prices had a good run. those who got in early have made a lot of money if they got out recently… Anyone who is getting in now will be hurt very badly…
I am curious why fresh grad cannot afford house? there are still plenty of 2nd hand LMC and LC in penang island. Price range 100K-300K. Don’t tell me 3K salary cannot afford to get the loan to buy it? just that they cannot save their 10% down payment.
nowadays the fresh grad especially youngster like to spend their $$ on entertainment, want to eat “ho liao”, want to own a nice car and usually want to enjoy and travel. Buy house also want to buy big 1 with >1000sqft. Surely cannot afford la.
Just wait for another few months to see the MYR currency and how it is going, the subsales market is slow and quiet now, the bulk purchasers definitely have a hard time from 2012-2013. Survey more properties and you will know the speculators now are actually very panic and want to release by earning just 5%~10%. And you know, penangites are reluctant to spend and will only buy after long2 considerations. Say good bye to property investors.
@Gloom
What u said is very general & most ppl know it. Everybody also know the property market will crash 1 day. The thing we dunno is how much it will crash & when. And this thing is very much tide with the economy fundamental, supply & demand. Supply will be overflow 1 day when most of the investor/ speculator release their stock at the same period. This need a big thing to trigger it. The current foreign money flow out may impact a little bit, but not yet trigger the mass supply surge. Demand will be reduced when ppl buying power continue to shrink, but this happen in a slow pace, and allow the investor/ speculator release their stock slowly. As such, I still think there should be a major event in order to trigger the market crash.
Btw, our country growth is estimated at 4.X% for 2013, lower than the earlier target at 5.X%. If BNM increase the OPR, the growth may dip further. This is another aspect that BNM need to consider. If the economy is bad, OPR suppose to be reduced to stimulate the economy activities.
The only way to pop the bubble is to raise interest rates.
I don’t think the government will be doing that now. Otherwise they will be digging their own graves.
Even at current interest rates. The economy is sluggish. Banks are not lending that freely anymore. I guess everyone can feel that crunch.
This slow down is good for the market. However, i doubt the bubble will pop since there is a correction now.
If you follow the price of commodities you can tell that price of commodities across the board has halved since their peak at 2011.
This is deflation at work.
I believe the government will introduce GST by 2014 to reduce its debt.
@Hemsley
Actually the foreign money outflow is the trigger… Just like it was during the Asia Financial Crisis… How much did property prices drop then? and how many developers went out of business?
Property Crash one day??? The signs are already here that there is only downside for property prices… Here are just a few
1. Property prices have been stagnant for the past 6 months.
2. Number of properties on the market went up from 12,000 late 2012 to over 30,000 now.
3. The number of properties at Bank Auctions have been increasing.
4. New developments are no longer sold out in days as they were a couple of years ago. With many still unsold 6 to 12 months later. Look at the road shows for evidence.
5. Banks tightening lending Criteria.
6. BNM tightening lending Policies
Do your own research and prove me wrong…
A big portion of the Malaysian Economic growth is reliant on property development and appreciation… So if the economy is slowing down from 5.6% to 4.7%… That’s a 16% reduction…
How do you think that will effect peoples daily lives and property prices over the next 6-12 months?
@Gloom
You have got to be kidding me?
Governor Zeti from BNM has been limiting hot money into our markets. Whenever, hot money flows in or out of our market we are the least affected.
@Gloom
agree with u … foreign money outflow is the trigger if not bnm would have done nothing
Amid the unprecedented skyrocketing house prices & soaring inflation …….
the sight of that useless grandma at bmm very happily grinning ear to ear standing beside the chubby bespectacled grandpa is very telling indeed
A few reasons why the property market won’t crash
1) It will hurt the economy drastically and the banks as well. Hence the government won’t let it happen because if they do it means everyone will vote them out the next general election.
2) We are running out of prime land on the island itself.
3) The population is growing faster than we though. Babies will be teenagers in no time and eventually they would need a home for themselves.
4) GST will be implemented soon enough to tax 100% of Malaysians. Since less then 8% of the population actually pay taxes.
Stagnation for property prices is actually a good thing. If it were to shoot all the way up every year i will be very worried. At least now it is correcting.
As long as government keeps interest rates low, people will continue to borrow and spend the money. That is the only way to stimulate and grow the economy through spending.
If the government increase interest rates. That means they want the people to save. Higher returns in fixed deposits.
So think about it. Interest rates are at all time low.
If they are serious about popping the bubble, increase interest rates by 0.5 basis points every 6 months.
However, i don’t think they will be doing that because they are claiming that the economy is still very sluggish.
As long as America doesn’t increase its overnight policy rate. BNM would follow suit as well. In fact the world will all follow the Federal Reserve
Let’s not forget America has the reserve currency. People are buying their treasuries and bonds.
It is like printing money but not printing money.
It is more like existing money loan by another country (e.g China) to America.
Hence, at the moment things aka commodities are stagnant. By right if they printed a whole lot of money we would have hyperinflation but thats not happening.
if property market crash …
many people will jump for joy !
can buy property cheaply , cost of other goods will also drop, food prices also drop ….
the only worried people contemplating suicide will be the ugly evil speculators and geedy developers who have been robbing the people blind …..
Properties will only crash if the economic growth really going down trend. Don’t expect properties crash until at least 2015 when US increased the interest rate.
You all should know the basic, it is a cycle. US and Europe already faced the recession and it is in the recovery stage while ASIA already 15 years in their booming. The cycle will come just the matter when. China growth is trending down for 2013 so how long ASIA can sustain the booming is a question mark.
Malaysia Inflation Rate Steady at 1.8% in June
In June of 2013, the annual inflation rate remained unchanged at 1.8 percent, the same rate recorded in the previous month, as government subsidies prevented higher food price increases ahead of the Muslim month of Ramadan.
Bank Negara Malaysia Holds Policy Rate at 3%
At the Monetary Policy Committee meeting held on July 11th, Bank Negara Malaysia decided to maintain the Overnight Policy Rate at 3.00 percent for the thirteenth time, citing concerns about weakness in the external sector. Information from trading economy website. Not created by me. NOT a good sign….GST must kicks to sustain the subsidies. No other choice.
Lots of aspect to determine properties crash but as economist analyzing south east asia market.. not now in 2013 or 2014. However prediction is 2015 but have to understand economic of a country changed everyday and months. So no one know until evidence presented especially from Reuters and Bloomberg news obtained.
@Boom
1. So you mean if property prices don’t crash but maintain their current course then when the cheapest LC in RM500k the government will get re-elected? I would say by that stage we would never know since there would be major civil unrest…
2. With over 170 developments on the island it’s self and developers continuously adding to their land bank I don’t belie for a minute that there is a land shortage… Also Penang has a lot of Leasehold land that is not government owned that will be redeveloped to higher density so will always be able to accommodate a growing population… Which is not growing
3. Penang population is actually shrinking… It has the highest brain drain of all the states. They either move to KL for better salaries and end up settling there or go overseas like Australia, Singapore, UK, Canada to never come back… If you look at the population growth Penang averaged 50,000 per year until 2009. In 2010/11 population only grew by 7000 (which is most likely by the influx of Bangals). For 2011/2012 there is no statistics available, but is available for other states. I would speculate that the Population has gone backwards and it most likely going backwards for 2012/2013.
4. GST being introduced means the government is desperate to raise revenue to continue their spending and try to stimulate the economy. So why would you want to buy properties in an economic environment like that… Economy going down but government trying everything they can to try to prop it up… It’s just an illusion now.
The bank interest rates are not set by the government. Why have a BLR of 6.5% when the bank can set theirs at 4.5%? Because they are getting foreign money for 2.5%. Which is better then the 1% or les they were getting from the bonds in USA.
Now that the 10year bonds in the USA have gone up from 1.7% in April to 2.7% now… money is flowing back home. Which means interest rates will have to go up.
The government is more concerned in protecting purchasing power of the ringgit that is why they will do what ever it takes to try to keep it at or below 3.25 MYR/USD… Which means either buying the currency them selves and using up their foreign reserves or raising interest rates…
Either way it will be game over for property over the next 6-12 months…
Malaysia is no different from Ireland, Spain, Greece, UK, USA or many other countries who have had a property crash over the last 5 years…
in general…penang market is just too small and not many people afford to buy property with price tag at 500k above… many unit are looking for buyers… this supply>demand is more obvious in penang compare to other state like JB and KL..
@Gloom
I don’t think the population has been shrinking. You can tell by the increasing amount of traffic in Penang. Besides that, the state government did say that we are on road to achieving 1.7 million people in Penang in the near future.
Scarcity of PRIME land in Penang will increase with time.
Brain drain in Penang is less severe as i noticed many Penangites are returning home after 2009. Even if they are in a foreign country, they would still invest in Penang. Since dollar to dollar it is cheaper for them to buy a condo here. RM500K is a lot of money to us but for those that earns in SGD, it is a mere SGD200k. This is nothing compared to a HDB that goes for the price of SgD800k.
The situation of the economy can only get better with the implementation of GST. It is extra revenue for the government to spent or reduce their current fiscal debt. Just imagine, majority of those paying taxes are the Chinese? For example. Since everyone is getting tax based on the stuff they buy, i do think this is a better way to address the grey area of taxes.
Interest rates will eventually have to go up. That i agree with you. However, i can 101% guarantee you it wont be the game over for properties in the next 6-12 months.
The banks here dont loan like the ones in America. Where if your property appreciates you are allowed to loan up to the appreciated amount to buy other stuffs.
They were giving money to people that can’t afford to have it. Is that happening here in Malaysia? Try applying for a loan and you might not even get one or just a mere 60-70% of it now. It is not easy to get cheap money anymore.
Game over for properties means game over for the banks too. Do you think that will happen in the next 1 year? No right….
You are trying to say Iskandar in Johor is on def-con mode? Why would Temasek Singapore invest billions in it if it is going to crash?
The only way to keep Penang going is to liberalize our foreign policy and allow more foreigners to come into Penang. Just like Singapore, where the 50% of its population consist of foreigners and they have kept Singapore booming for the past 50 over years.
And when you talked about hot money coming into our markets and how it affects our ringgit. I just want to clarify that Malaysia in terms of the ratio of hot money flowing into our country as compared to other countries, we are actually well shielded.
Hence if you noticed when other markets starts to go on a bull run, we tend to lag behind. Hot money isn’t really interested in Malaysia and if they do, they are limited to a certain amount. Governor Zeti did mention this in her 2012 speech. Many foreign investors feels that most of the assets here in Malaysia are owned by PNB or EPF, in other words government owned.
My point of view is that the bull run for the property market is probably coming to an end now. But i don’t think it will crash, people will certainly take profit along the way. The market will stabilize.
I do believe Penang properties will be resilient as long as the state is properly managed. If we keep doing the right thing. E.g. Upgrading the infrastructures, building more tourist attractions, maintaining our UNESCO Heritage status, maintaining our top 10 status as the most livable city in Asia, coverage by Bloomberg and the Economist. I believe with all these positive news going on, more and more people would want to stay in Penang.
This is where the BOOM is for Penang. The Penang Paradigm.
@Gloom
http://penanginstitute.org/v3/resources/data-centre/122-population
No new foreign and local investment in Pg island for some time already.
Pg island solely depends on manufacturing/factory.
No service sector (Finance, Consultancy, Education, Biz center…etc) is coming into Pg island like KL and JB.
Pg’s future is not that bright.
Penang already has 1.66million. Just need another 40,000 Banglas or Indo maids. And presto the Government is right…
Since the introduction of Talent Corp in 2009. A government initiative to entice Malaysian Professionals to come back to Malaysia they have only been able to get 1700… and this is with incentives like 15% flat tax rate for 5 years and two tax free cars.
So no Penang Population has not been increasing…
And as for the traffic issues… they are more to do with people refinancing their house loans and upgrading from motorbikes to a cars… Accessing their equity…
With house prices having gone up every one who has a house suddenly feels rich and they thing they have all this extra free money they can access… There is a running joke in Penang that I have hear on a number of occasions… Penang is full of poor millionaires. People earning less than 1000 yet have a property worth over a 1 mil that the brought 30-40 years ago for 5,000-10,000.
I really don’t understand the logic of comparing Penang to Singapore as many people seem to do here…
For one the Singapore Population density is almost 2 times higher then Penang… so higher property prices are expected to an extent. Secondly the average income in Singapore is 5 times higher then Malaysia…
People didn’t think property was going to crash back in 1996… but it did in 1997/8. People here are in denial coming up with all sorts of reasons why property in Penang won’t crash. If you really open up your eyes and see what is going on around the world and in Malaysia you will see that Asia Financial Crisis Number 2 is upon us.
Don’t compare ratios to other countries… That has nothing to do with us here in Malaysia and our property… Look at how much government debt is held by foreign money… Almost 50%… that is not good when that money wants to leave the country and get better returns elsewhere at lower risk…
KUALA LUMPUR: A survey of 1,000 people in Malaysia by HSBC revealed that 43% of respondents are inadequately prepared, and that one in 10 are not prepared at all for retirement.
The survey conducted in July-August 2012, found 28% of Malaysian respondents have never saved for retirement, including 18% of those in the 55-64 age group.
According to HSBC, financial security after retirement is an issue that will affect millions of Malaysians, especially in light of the United Nation’s forecast that by 2050, there would be one Malaysian aged over 65 for every four aged between 15 and 64.
One interesting highlight from the survey is the question of how long respondents thought they would live after retirement and how long they thought their savings would last.
The answer: Malaysians expected to live 17 more years but their funds would only last them 12 years.
Many thought that in order to enjoy a comfortable existence after retirement, they would require 81% of their working age income. On average, respondents were of the opinion that they need a household income of RM76,900 a year.
As only 46% of those surveyed were regular savers, the crucial question is: Why are people not saving for retirement?
Half of those not saving for retirement said they were being held back by the cost of day-to-day living, and 30% believed that they were saving or investing in a “different way”.
The two biggest obstacles people cited for hampering their ability to save are buying a home (48%) and paying for the children’s education (33%).
On a brighter note, HSBC says Malaysian respondents are amongst the most likely to choose saving for retirement (59%) over saving for a holiday (37%).
“Nevertheless, a significant proportion of Malaysian respondents are willing to dig into retirement savings as a means of dealing with an unforeseen crisis. Taken together, this shows that whilst focusing on the longer term helps to boost savings for retirement, the readiness to draw on long-term savings in an unexpected crisis will act to reduce the value of retirement savings for some Malaysian respondents,” it stresses.
The survey showed that the most common methods of retirement financial planning are informal, such as people’s own approximate calculations (53%), and HSBC notes that people who got professional advice tended to save more.
Of those who used a professional financial adviser, 60% saved more for retirement as a result. And of those who consulted a professional financial adviser to develop a written financial plan, 67% saved more for retirement.
In comparison, among those who plan their own retirement, only 52% saved more.
The most popular retirement aspirations among Malaysian are 1) to spend more time with friends and family (75%), 2) to take frequent holidays (62%), and 3) to start a business (48%).
The biggest fears surrounding retirement were financial hardship (68%) and poor health (59%).
One economist did provide a straightforward definition of an asset bubble: Hyman Minsky. He belonged to the post-Keynesian school of economic thought, a heterodox school with an alternative theory of how financial markets and the banking system interacts with assets, typically shares and real estate.
One of the centrepieces of Minsky’s work is the “Financial Instability Hypothesis” (FIH) which argues financial markets are intrinsically chaotic and inefficient, eventually sowing the seeds of their own destruction. According to the FIH, a bubble is defined on the basis of how an asset class is financed.
This is important, as it allows us to assess whether overvaluation exists within any particular asset class, or in this case, real estate. According to Minsky, the state of financing can be described as either hedge, speculative, or Ponzi.
With hedge financing, asset income flows are sufficient to pay down both principal and interest on the debt used to finance the asset purchase, and prices are based upon fundamental or intrinsic value. The second state is speculative finance, where income flows cover only interest repayments but not principal, requiring debt to be continually rolled over from the current time period to the next.
The terminal phase is that of Ponzi finance, as income flows cover neither principal nor interest repayments. This leaves owners completely reliant upon escalating asset values to realise substantial capital gains upon sale to meet the cost of debt and expenses. In the case of real estate, if property investors can’t profit from rental income, then realising capital gains becomes the only avenue.
As investors speculate, the debt used for asset purchases inevitably rises as both the cause and response to price increases, creating a positive feedback loop between prices and debt. Put simply, for the residential property market to meet Minsky’s definition of a bubble, three conditions must be met: increases in real (inflation-adjusted) housing prices and mortgage debt, along with persistent rental income losses.
@Gloom
I see that you are praying hard for a bubble to burst… fat chance… the only bubble likely to burst will be your balloons…..for home prices to go back to previous level then your wan tan mee must go back to RM 1.50 a bowl (same ingredients and same amount)… possible?
House Buyers Association wants real property gains taxes to be raised to curb speculation
KUALA LUMPUR: Stamp duties and real property gains tax (RPGT) on the third and subsequent properties should be increased to curb speculative buying of properties, the National House Buyers Association (HBA).
The government has been imposing low stamp duties to encourage home ownership but speculators had taken advantage of them to accumulate multiple properties and manipulate property prices.
“The situation has been getting worse with the so-called ‘Investor Club’ manipulating the property market through block purchases. You just need to attend one of their seminars or conventions, you will know what I mean,” HBA secretary-general, Chang Kim Loong, told Bernama.
While the association wants the government to maintain the current formula of one per cent for the first RM100,000 for the first two properties, the association also wanted those buying third property to pay at least five percent of the purchase price as stamp duty.
Chang also suggested that a higher stamp duty be imposed on fourth and subsequent properties, probably a flat rate of 7.5 percent for the fourth property and 10 percent for the fifth property.
Chang said HBA also wanted the RPGT to be increased as the current rates were low and had little impact on short-term speculators who continued grabbing houses for profit, thus pushing up property prices to unbelievable levels.
Therefore, HBA is proposing 30 percent RPGT on properties being disposed of within two years, 20 percent between two-three years and no RPGT imposed on property that is sold after five years of purchase.
However, for those who own a third and subsequent property, a 30 percent RPGT should be imposed for properties disposed of within 10 years.
“We have submitted our ten-point proposal to the Ministry of Finance during the recent Focus Group meeting. We hope the government adopts our proposal to curb price speculation,” he said.
The Focus Group meeting on Aug 2, was chaired by Second Finance Minister Datuk Seri Ahmad Husni Hanadzlah to discuss the income inequality issue to solicit input for consideration under Budget 2014, which will be tabled in Parliament on Oct 25.
manufacturing sector not doing well, hv cut cost, reduce manpower, many of them in this line are worried will loss job. href=”#comment-153724″>@Investor
1. No more overnite Q for new launch.
2. Slow take up for new launch – H2O, Starhill, Strait Garden. Sunway Cassia, Arte S…whatnots.
3. No new huge investment in PG.
4. Factories start to retrench.
5. Bank loan application/approval dropped.
Is it a slow down in property market?
In short to summarize the battle of dual opinions, just seat back relax and see what happens. For sure, both opinion will come true, but matter of time. Boom or Gloom, i must say i prefer boom because i do not want people losing jobs when economy down. But i want my wan tan mee to go back to 1.50/bowl though.. lol..
@BP
Totally agree with you.
Just wait for another 6-12 months to see whether what Gloom said is true.
Otherwise, Boom is the way! :p
@Spectator
True true, let time to proof lah.
just imagine what going to happen in Pg Island in another 10 year time, too many new projects launch but the transport system no improvenent, all the road are easily jemmed when raining, from friday evening to sat very congested, Pg driver behave very rude, never follow rule, eventhough its not our fault, we scared to come out fromt car to settle the pronlem worried ‘buta buta kena hemtam’.